With the failure of Republicans’ health care effort, some Senate moderates are looking to prop Obamacare up with additional taxpayer funds. There’s a case to be made for a short-term bailout of Obamacare—but only if it’s accompanied by serious reforms that liberate consumers from the law’s rising health insurance premiums.

Why Obamacare was sloppily drafted

Our story starts in December 2009, when Democrats controlled 60 votes in the U.S. Senate and used that majority to muscle through an initial draft of the Patient Protection and Affordable Care Act. The following month, in famously liberal Massachusetts, Republican Scott Brown defeated Democrat Martha Coakley for the U.S. Senate seat vacated by the recently-deceased Ted Kennedy. That brought Democrats’ majority down to 59 from a filibuster-proof 60.

Normally, the House and Senate pass different versions of a bill, and then a House-Senate conference merges them into a unitary bill that is voted on again by both bodies. But now that Democrats no longer had a filibuster-proof majority, they didn’t want to do things the normal way.

Then-House Speaker Nancy Pelosi (Calif.) and Senate Majority Leader Harry Reid (Nev.) came up with an unconventional plan to jam Obamacare through. The House would “deem and pass” the Senate bill, without any changes, instead of merging their own version with the Senate bill in a House-Senate conference. They would then use the Senate reconciliation process to make a few minor tweaks with a 50-vote majority.

The strategy worked, in terms of getting Obamacare passed as law. But as a consequence, the sloppy first draft of Obamacare that passed in the Senate in December 2009 became law, without any of the legal proofreading that would have taken place in a normal House-Senate conference.

Among the consequences of the sloppiness were a Supreme Court case, King v. Burwell, which litigated the illegality of federal subsidies flowing to a federally-run insurance exchange (as opposed to exchanges that were directly set up by state governments).

Obamacare’s cost-sharing subsidies in legal limbo

Another piece of litigation, House of Representatives v. Price, involves the illegality of Obamacare cost-sharing reduction subsidies, or CSRs. CSRs are designed to subsidize deductibles and co-pays for lower-income individuals—those below 250 percent of the Federal Poverty Level—buying coverage on Obamacare’s exchanges. Without those subsidies, deductibles under Obamacare can exceed $6,000.

The House of Representatives sued the Obama administration, noting that the statutory text of the Affordable Care Act talks a lot about cost-sharing subsidies, and requires insurers to design policies that assume the existence of cost-sharing subsidies, but never actually appropriates funding to dole out the subsidies. It’s illegal for the executive branch to spend money that Congress has not appropriated.

A federal judge ruled in favor of the House in 2015, that the subsidies were illegal. The judge initially enjoined the Obama administration from continuing the subsidies, but later stayed the injunction at Congress' request, putting the legality and existence of CSRs in limbo. They continue to this day, pending further litigation, but President Trump has expressed a desire to end what he calls “bailouts for insurance companies.”

If a new HealthCare Bill is not approved quickly, BAILOUTS for Insurance Companies and BAILOUTS for Members of Congress will end very soon!

The President’s opposition to bailouts is understandable, but to be fair, funding Obamacare’s cost-sharing subsidies wouldn’t be a bailout of insurers.

The term “bailout” is most appropriate when used to describe extra funding to prop up a business or person or institution that is responsible for its own failure, whether due to irresponsibility or simply voluntary behavior with poor outcomes.

The reason why CSRs are in legal limbo is due to problems with the way the ACA was drafted, not because of dumb or irresponsible behavior by insurers. The insurers are legally required under the Affordable Care Act to design products that pay enrollees’ claims as if they had funding for CSRs, even if Congress doesn’t appropriate the money.

Hence, a Congressional appropriation for cost-sharing subsidies wouldn’t be a bailout of insurers—it would be bailout of Obamacare’s sloppy authors.

The policy case for a short-term Obamacare bailout

Having said all that, there is a case to be made for bailing out Obamacare in the short term, in exchange for real reforms over the long term.

Without the federal funding for cost-sharing subsidies, insurers will still have to pay health care claims as if CSRs still existed. Hence, they will lose tons of money covering Obamacare enrollees eligible for CSRs, money that they will have to recoup by raising premiums on everyone else.

For example, Blue Cross Blue Shield of North Carolina has stated that its 2018 Obamacare plans will endure a premium increase of 9 percent if cost sharing subsidies continue, but 23 percent if they don’t continue. “The calendar does not give us much time to see how things play out in Washington,” notes CEO Brad Wilson, because insurers have to file their proposed 2018 rates with regulators many months in advance.

Those higher premiums will harm taxpayers, who will have to fund higher premium subsidies for everyone else. They’ll also harm those who buy coverage on their own and are ineligible for subsidies, because their incomes are above 400 percent of the Federal Poverty Level.

But simply bailing out Obamacare—without doing anything to tackle the manifold ways the law traps people in high-cost plans—would compound the irresponsibility of Obamacare’s authors with further irresponsibility. Unfortunately, this resembles the course being recommended by Sen. Lamar Alexander (Tenn.), the Republican chairman of the Senate Health, Education, Labor, and Pensions Committee.

The right path forward for Congress would be to pass a short-term, one-year funding package for Obamacare’s cost-sharing subsidies, in exchange for real reforms of the individual insurance market.

Real reforms that lower premiums

Those reforms can only be meaningful if they include a repeal of Obamacare’s individual mandate. The mandate can be replaced by a six-month waiting period for those who choose not to enroll, and paired with reforms that will reduce Obamacare premiums, such as eliminating the “age bands” that force insurers to overcharge younger enrollees.

If the Senate’s “skinny repeal” could get 49 votes in the Senate, a bipartisan package to fund CSRs, fund a short-term reinsurance or high-risk pool program, repeal the individual mandate, and enact premium-lowering regulatory reforms might do better. Indeed, the Senate could appropriate CSR funding for a longer term, if the paired reforms are sufficiently robust.

But if Sen. Alexander and colleagues simply bail out Obamacare without further reforms—or only with superficial ones—you can count out any future effort by the Senate to tackle the problem of Obamacare’s high premiums. It will never happen. The Senate will kick the can down the road year after year, without meaningful change, like it usually does.

In effect, the CSR bailout is a test of conservatives’ mettle in the post-repeal GOP. Will they pass or fail?

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UPDATE: Below is a statement from Sen. Alexander, expressing his desire to continue CSRs through September as a solo measure, and to pair long-term CSR funding with “greater flexibility for states in approving health insurance policies.”

As we prepare for these discussions, I have also urged the president to temporarily continue the cost-sharing reduction payments through September so that Congress can work on a short- term solution for stabilizing the individual market in 2018.

Cost-sharing reduction subsidies reduce copays and deductibles and other out-of-pocket costs to help low income Americans who buy their health insurance on the exchanges that would be (those who make under 250 percent of Federal Poverty Level, roughly $30,000 for an individual or $60,000 for a family of four).

Without payment of these cost-sharing reductions, Americans will be hurt. Up to half of the states will likely have bare counties with zero insurance providers offering insurance on the exchanges, and insurance premiums will increase by roughly 20%, according to America’s Health Insurance Plans (AHIP).

In my opinion, any solution that Congress passes for a 2018 stabilization package would need to be small, bipartisan and balanced. It should include funding for the cost-sharing reductions, but it also should also include greater flexibility for states in approving health insurance policies.

Now if the president were to approve continuation of cost-sharing subsidies for August and September, and if Congress in September passed a stabilization plan that includes cost-sharing for one year, it is reasonable to expect that the insurance companies would then lower their rates. They have told us, in fact Oliver Wyman an independent observer of health care, has told us that lack of funding for the cost-sharing reductions would add 11 to 20 percent to premiums in 2018.